Britvic fizzes higher on strong results, confident outlook despite drinks levy

Annual profits from Britvic fell less than expected as a poor performance from UK still soft drinks was balanced by a more effervescent performance from carbonated drinks at home and overseas.

Revenue in the 52 weeks to 1 October increased by 7.7% on a reported basis and by 2.5% on an organic basis to £1.54bn, boosted by the acquisitions of Brazil's Bela Ischia in March and East Coast in Dublin, plus product innovation that contributed 5.4% of revenue from 4.0% last year.

While GB stills saw sales decline, performance improved year on year and volume growth returned by the end of the year, though Robinsons and Fruit Shoot faced greater pricing pressure in grocery due to aggressive private label and branded competition.

Adjusted earnings before interest tax, depreciation and amortisation of £195.5m was up 5.1% and 5.6%, ahead of an analyst forecast range of £185-192m.

Two years into management's 'business capability programme', benefits are coming ahead of schedule, with £3m feeding through to the bottom line in 2017 that was above the £1m expected and so helped enable the forecast beat.

Adjusted earnings per share climbed 7.3% to 52.9p, again higher than City expectations, benefitting from a slightly lower effective tax rate.

Net debt increased to £589.9m from £502.9m due to acquisitions and the capex programme, but the dividend was hiked 8.2% to 26.5p.

Upon completion of the remaining proposed strategic measures in early 2019, management believes the group will be in a position to realise the full benefits of the programme from 2020, with greater production efficiency, reduced distribution costs and working capital benefits from carrying lower inventory.

Free cash flow is forecast to accelerate significantly, as capital expenditure reduces to more normal levels from 2019, with greater production capability of pack sizes to enable the commercial teams to be more flexible to market trends.

With 2018 bringing the introduction of the UK and Irish soft drinks industry levy, management acknowledged the "high level of uncertainty it will create in the short term" but assured that "we have prepared well" and "believe we are well placed to navigate it".

"This, combined with our continued focus on revenue and cost management, including the benefits of the business capability programme, mean, we feel confident of delivering further progress next year. "Further forward, as the business capability programme approaches completion, we will see additional cost and cash flow improvements, creating a strong platform for an exciting future for Britvic."

Britvic shares fizzed higher on Wednesday, rising almost 7% to top 800p for the first time, hitting 809.5p after 1000 GMT.

Analyst Kate Calvert at Investec said the numbers were "comfortably" ahead of forecasts and said the company-compiled consensus EBITA of £198m is likely to increase, "but perhaps not by much, as we expect the market to remain cautious on numbers until we see the consumer reaction to the levy - which Britvic say they will be passing on in full on their Pepsi business".

Calvert noted that the owned brand portfolio largely sits below the levy.

Whilst the numbers are a beat and may raise the base estimates for 2018, broker Shore Capital thought the market would be "cautious around the sugar levy so do not anticipate upgrades and we expect to nudge down our expectations".